Overview of Limited Liability Partnership LLP Act, 2008 passed by Lok Sabha on 12th of December 2008 and the President gave assent to the Bill on 7th January 2009. LLP Rules, 2009 Notified on 01st of April 2009. Constituent of LLP Act, 2008 81 Section 4 Schedules 29 Forms Out of 81 Sections, 75 Sections were so far Notified (Except provisions on Winding up and dissolution). Out of Four Schedules, Schedule 1 defines the Mutual Rights and Liabilities ofthe Partner, in the absence of any matter in LLP Agreement and other schedulesprescribes provisions relating to conversion.
What is Limited Liability Partnership? Hybrid of Corporate & Partnership business Form. Limits liability of partners to the extent of their contribution. provides flexibility without imposing detailed (and costly) legal and procedural requirements. The organization and operationsare on the basis of an mutual agreement.
Features of LLP Body Corporate Separate Legal y bilit Identity lica Act a p p hi p Non artners Of P Feat ur es Perpetual Succession Only with Profit Motive Limited Liability of Partners
Benefits as Compared to Partnership Firm Ω Unlimited No. of Partners Ω Limited Liability of Partners Ω LLP is liable to the extent of assets. Ω No Liability of a partner for the wrongful act of other partner. Ω No exposure to the personal assets of partners except in case of fraud.
Benefits as Compared to Corporate Form Ω Easy to Form, Run and manage. Ω Internal structure and governance through mutual agreement. ΩNo Minimum Contribution Ω Less Government Intervention Ω Less requirement as to maintenance of statutory records Ω Less Compliances Ω Taxation (Income Tax) of LLP will be like general partnership. Ω No wealth Tax.
Key Concepts of LLP Partners & Designated Partners Contribution Role of Partner Liability of Partner Formation & Conversion Compliances of LLP Foreign LLP Reservation of Name by Foreign LLP/Foreign Company Compromise & Arrangement Dissolution & Winding up Taxation of LLP
LLP Act-New Features LLP Mandatory imprisonment with penalty for false statement, fraud and non- compliance of order of Tribunal/CLB/Court [(Section-11(3),37,30,73)]. Un-limited Liability of Partners and LLP in event of business are carried out with intent of defraud its creditors or third parties (Sec-30). Waiver of penalties and protection against future vindictive action to whistle blowers (Sec-31). LLP is liable to third party to the extent of credit received by it or any financial benefit derived on falsely holding out of a person as partner of LLP (Sec-29). Central Govt. by Notification may apply/extend any provisions of Companies Act, 1956 (With or without modifications) to LLPs.
Partners & Designated Partners Any Individual or/and body corporate may be partner. (A foreigner can be partner of a LLP in India). Body Corporate means company as defined under section 3 of the companies Act, 1956 and includes - Limited liability partnership registered under LLP Act - Limited Liability Partnership incorporated outside India and - Company incorporated outside India Designated partner : - - Every LLP shall have at least two designated partners who are individuals and at least one of them shall be resident in India. - Responsible for managing the day to day affairs and ensuring the compliances of all applicable laws. Requirements for Designated Partners : - - Designated Partner identification Number (DPIN) - Only Individual can be the Designated Partners. - At least One Designated partner should be resident of India. - In case of Body corporate their nominees can be the Designated Partners.
Contribution Share Capital Contribution Each partner shall bring contribution in LLP and nature & amount shall be disclosed in the Accounts of LLP. Contribution can be in tangible, movable, immovable or intangible Form. In case of “tangible/Intangible (other than cash) Form of contribution” or “contribution by way of service contract” it shall be valued by a practicing Chartered Accountant/Cost Accountant/Approved Valuer.
Role/ Rights of Partner Right to participate in Management For Business Purposes Agent of Limited Liability Partnership, not of other Partners. Ethical duty to comply with all provisions of LLP Act and LLP Agreement.Liability of Partners Limited to the Extent of their Contribution Not Liable for the wrongful Acts /Omissions of other Partners Not Liable for Obligation of LLP arising out of a contract. Unlimited Liability of Partners in case of Fraud.
Formation of LLP II - Obtaining DPIN (Form-7) & Digital Signature III - Reservation of Name for LLP (Form-1) IV - Filing of Incorporation Document (Form-2) V - Certificate of Incorporation VI – Filing of LLP Agreement (Form-3) VII – Filing of Consent of partners/Designated partners (Form-4)
Step I Incorporation Parameters for deciding the Partners and Designated Partners: At least 2 Partners - Individuals or Body Corporate Minimum Two Designated Partners out of total no. of Partners – Individuals or Nominee of Body Corporate. At least One Designated Partner to be Resident of India.
Step II Incorporation Obtaining DPIN (Form-7) & Digital Signature DPIN – Designated Partner Identification Number DPIN - 8 digit Numeric Number DPIN vs DIN Online application in Form 7 to Central Government Submission of the physical application along with Identity and Address Proof of applicant.
Step III Incorporation Reservation of name Availability for LLP (Form-1) The word ‘LLP’ or ‘Limited Liability partnership’ shall be the last word of name. Not to be identical or too nearly resembles to any other partnership firm, LLP, Body Corporate and trade mark. (Section-15) Not to be Prohibited under Emblems ‘Emblems and Names (Prevention of Improper use) Act, 1950 and Rule-18. If business includes banking, stock exchange, NBFCs activities, chit funds, micro finance (offering small loans/contribution from public, collective investment scheme, a copy of in principle approval of appropriate authority to be obtained. e Form 1 to be filed with ROC.
Step IV Incorporation IV - Filing of Incorporation Document (Form-2) e Form 2 – Incorporation Document along with Subscription Sheet and proof of address of registered office of LLP. Total incorporation fees Contribution up to 1 Fee Contribution More Fee lakh than 10 lakh Form 1 (Name 200 Form 1 (Name 200 Availability) Availability) Form 2 (Incorporation 500 Form 2 (Incorporation 5000 Document) Document) Form 3 (LLP Agreement 50 Form 3 (LLP 200 Registration) Agreement Registration) Form 4 (Partners 50 Form 4 (Partners 200 Consent) Consent)
Step V Incorporation V - Certificate of Incorporation On Successful Compliances – Registrar Issues Certificate of Incorporation. Conclusive Evidence of Registration of Limited Liability Partnership
Step VI Incorporation VI - Registration of LLP Agreement Execution of LLP Agreement is mandatory (Section-23). In absence of Agreement as to any matter, Schedule 1 will be applicable. Filing of details of LLP Agreement through e Form 3 – within 30 days of Incorporation. Stamp duty on LLP agreement to be paid as per State Stamp Act. Under Income Tax, interest paid and remuneration or commission paid to partners will be allowed as deduction if payment is authorized by written LLP Agreement.
All partners entitled to share equally in the Capital and Profits/losses. Indemnity to the partners on personal liability in proper conduct of business. Every Partner shall take part in management No partner shall be entitled to remuneration. No partner introduced without consent of all partners. All decisions with majority of partners consent Minutes to be recorded within 30 days Render True Accounts All Disputes will be referred to Arbitration Act
Compliances of LLP With Registrar Form-3, Form-4, Form-5, Form-15 Form-8 and Form-11
Event Based Compliances of LLP Compliance Section e-form Time Limit Filing of Consent of 7(3) Form 4 Within 30 days of incorporation Designated Partners or subsequent appointments Filing of Change in 25(2) Form 3 Within 30 days of Change Partners and Form 4 LLP Agreement & 23(2) Form 3 With in 30 days of incorporation Changes therein or Changes in LLP Agreement Shifting of Registered 13(3) Form 15 Within 30 days of Compliance Office Change of Name 19 Form 5 Within 30 days of Compliance. Additional Fees for delay filing of Form - Rs. 100 per day upto 300 days. Delay Filing of the Form beyond 300 days will attract additional fees and action against LLP and Designated Partners under the Act.
Regular Compliances of LLP Maintenance of proper Books of Accounts on cash basis or on accrual basis and according to the Double Entry System of Accounting. Maintained at registered office and preserved for at least 8 years. Audit of Accounts in accordance with the Rules prescribed. Form-8 (Filing of Statements of Accounts & Solvency) – Within 30 days from the end of 6 months from the closure of Financial Year. Form-11 (Filing of Annual Return) – within 60 Days of closure of Financial Year
Conversion of LLP Who can Convert ? Partnership Firm Private Company Unlisted Public Company
Procedure of Conversion of Company/Firm to LLP VII - Intimation of Conversion to ROC (Form 14) VI - Certificate of Conversion into LLP (Form 19) V - Filing of Conversion Application (Form 17/18) IV- Filing of Incorporation Document (Form-2) III – Reservation of Name for LLP (Form-1) II - Obtaining DPIN & Digital Signature I - Deciding the Partners & Designated Partners
Important Considerations for conversion LLP • Filing of Form with registrar of LLP:- - Form-7 & Form1 and - Form-17/18 & Form-2 (with mandatory attachments) • All the Members of the Company/partners of the firm shall be the Partners in LLP (and no one else) with the same capital/contribution ratio. • Consent of all Members of the Company/partners of the firm shall be obtained. • No security interest on the assets shall be subsisting or in force on the date of application. • NOC from Unsecured creditors. • Statement of Assets and Liabilities certified by Auditor of not more than 30 days prior to the date of the conversion application. • All due returns of ROC, Income Tax and other Tax authorities shall be filed. • NOC from other authority for conversion, if required. • After receiving Conversion Certificate the same to be filed within 15 days with the Registrar of Companies in Form 14 .
Foreign LLP [LLP Incorporated Outside India (LIOI)] Section 59 of LLP Act, 2008 contain provisions regarding establishment of the place of business by Foreign Limited Liability Partnership within the India for carrying on their business. Filing of Form-27 within 30 days from establishment of place of business in India. Permission/approval of Reserve Bank of India (RBI) required for establishment of place of business in India. Filing fees for Form-27 - Rs.5000/- Compliance of special Act, If the business is regulated by special Act.
Reservation/Renewal of Name by ForeignLLP/Foreign Company Foreign LLP/Foreign Company can reserve its existing name by which it is registered in the Foreign Country. Form-25 is to be filed with the fees of Rs.10,000/- Reservation of name valid for 3 years. Renewal of name is possible by filing fresh From-25 on payment of fees Rs.5,000/-.
Compromise & Arrangement Application is to be made to Tribunal by LLP or creditor or partners for compromise or arrangements. In case of LLP is under winding up, the application can be made by the liquidator. Tribunal orders for meeting of creditors or partners for decision/resolution by 3/4th in value of creditors or partners agreeing to any compromise or arrangement. Tribunal may order sanctioning a compromise or an arrangement. Till the time tribunal is constituted application will be made to High Court.
Winding up of LLP Alike Companies, LLP may be wound up either Voluntary or by the Order of Tribunal. The Rules for winding up is yet to be notified by C.G.
Taxation LLP (as per the Finance Act, 2009) Ώ Profit will be taxed in hand of the LLP and not in the hands of Partners w.e.f assessment year 2010-11. Ώ Remuneration to partners will be taxed as their “income from business & profession”. Ώ No Surcharge will be levied on income tax. Ώ No Minimum Alternate Tax and dividend distribution tax Ώ No Capital gain on conversion of partnership firm into LLP Ώ Designated partners will liable to sign and file Income Tax return
Merits of LLP (as business model for SMEs and service providers) Ώ Separate legal entity & body corporate. Ώ Low compliance burden & cost. Ώ Limited Liability of partners. Ώ LLP is liable to the extent of its assets. Ώ More flexibility than company. Ώ Right of partners can be assigned to third party. Ώ Availability of solvency position in public domain increases the credit worthiness. Ώ Allows Multi-disciplinary professionals combination which provides level playing field against their international professional firm. Ώ Easy to exit/ winding up. Ώ Venture capital funds can combined with knowledge and expertise. Ώ Taxation benefits as compare to company.